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I had the pleasure of attending the TE/GE (Tax Exempt/Government Entities) annual joint conference in Baltimore on February 28, 2014. One of the panels, which included practitioners and representatives from the IRS, discussed the EP Voluntary Closing Agreement Program (outside of EPCRS) that was addressed in IRS Delegation Order 8-3 (DO). The DO 8-3 Closing Agreement is normally used when a plan becomes non-qualified and the plan sponsor is in agreement with the non-qualification and does not want to seek requalification for the plan or is unable to do so. In effect, the taxpayer and the IRS formally agree on a proposed non-qualification or agreed revocation / agreed non-qualification.

In the case discussed, the sanction under the Closing Agreement was $4,000. The facts of the case presented by one of the panelists seemed to indicate that for all income tax purposes, i.e., taxation of trust income, deductibility of contributions, and rollovers to IRAs, etc., the plan was treated as qualified. It should be noted, however, that depending on circumstances, a Closing Agreement request does not necessarily preclude the plan or plan sponsor from examination, at which time these issues might be raised.

A plan or plan sponsor that might be suited for this program would be an employer who (1) established a qualified plan through a prototype or turnkey service provider, (2) failed to follow the terms of the plan since the inception due to lack of oversight by the service provider or continuous turnover in staffing, or (3) no longer has employees.